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Foreign Direct Investment and Technology Spillovers: An Analysis of Indian Manufacturing

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  • Chandrakanti Behera

Abstract

Using a rich firm-level panel dataset of Indian manufacturing over 2010–2018, this study aims to identify the spillover effects associated with foreign direct investment (FDI). To this end, we distinguish spillover effects into horizontal (Intra-industry linkage) and vertical (backward or downstream and forward or upstream Inter-industry linkages) FDI channels. We employ various semi-parametric methods to tackle the endogeneity issues in productivity estimation. We find that backward spillover from the downstream multinational enterprises is the only source of total factor productivity gains. However, the magnitude of negative forward–vertical linkage is larger than the positive backward–vertical effect. The analysis also broadly compares technology spillovers for domestic and all firms in the sector. Finally, we investigate productivity spillover across industries based on their technology intensity. Our findings suggest that industry heterogeneity is a key driver of FDI spillover. JEL Codes : F23, D24, O33, L1

Suggested Citation

  • Chandrakanti Behera, 2025. "Foreign Direct Investment and Technology Spillovers: An Analysis of Indian Manufacturing," Foreign Trade Review, , vol. 60(1), pages 83-108, February.
    • Handle: RePEc:sae:fortra:v:60:y:2025:i:1:p:83-108
    DOI: 10.1177/00157325231190509
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    More about this item

    Keywords

    Foreign direct investment; TFP; technology transfer; industry heterogeneity;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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